GAP Insurance Explained is your guide to all things GAP, including what it is, what it covers and how it works. Read on for more.
If you write your car off in a road traffic accident or your car is stolen, your insurer will generally pay out the value of your car at the time of the accident (market value). But due to rapid depreciation, this could be significantly less than you paid for it or what is outstanding in loans/finance. Step forward GAP. Guaranteed asset protection, or GAP Insurance, should cover the difference between the two figures.
What is GAP Insurance?
Return to Invoice (RTI)/Finance Guaranteed Asset Protection (GAP) Insurance supplements fully comprehensive (not third-party) Car Insurance policies.
It ensures you get the price you paid for your car or vehicle, or the outstanding loan amount, if it’s subject to a total loss claim (written off or stolen).
It basically plugs the gap between what you spent and what you stand to recoup should there be a shortfall. There often is a difference and, what’s more, it can run into thousands if you’re dealing with a relatively new car (even if it’s secondhand).
RTI GAP insurance means that you should never end up out of pocket if there’s a shortfall in the respective values.
What does GAP Insurance cover?
Our RTI/Finance GAP Insurance covers new and used vehicles under 100,000 miles or 10 years of age, with a value of up to £180,000 when cover is purchased. RTI GAP insurance from CKI also reimburses a Car Insurance excess of up to £250.
Our GAP policies don’t cover two-wheelers or larger commercial vehicles, kit cars and some imports so check beforehand.
Remember: It won’t replace your car but it should protect you from being out of pocket or outstanding finance, which means you can buy a new car.
How does GAP Insurance work?
If you bought a car outright or via a loan for, say, £25,000, and disaster strikes 2 years later and your car insurer declares it a write-off, the policy will likely reimburse the current or market value of the car.
Let’s say the insurer offers a settlement of £18,000, which is what the equivalent car would cost today. That leaves a shortfall of £7,000. If you bought the car on finance, you’ll still have to pay that remaining balance back on top of the cost of a replacement car.
GAP can safeguard your investment and cover the outstanding balance, working alongside your standard insurance policy, so you don’t end up out of pocket.
You can make a GAP claim once your car insurer has agreed to settle, but it’s a good idea to have a chat with your GAP insurer at the outset of the claim just to be sure.
Types of GAP Insurance
Here at Chris Knott Insurance, we have specific expertise in the RTI GAP Insurance arena; however, there are other types, including:
Finance GAP Insurance: A basic cover to settle outstanding finance or loan payments regardless of insurance payout. It’s important to note that it doesn’t cover depreciation.
Lease (or ‘Contract Hire’) GAP Insurance: Covers remaining contractual and other fees on the total loss vehicle. This only covers cars you’ve leased with no option to buy.
Negative Equity GAP Insurance: Covers negative equity, most often when someone transfers remaining debt from their previous car to a newer one on finance.
Vehicle Replacement GAP Insurance: Tops up the insurance payout to replace the lost vehicle with a new (to you) one of equal condition even if the price has since gone up, rather than to what you paid for the original car.
Return to Value GAP Insurance: Whereas RTI supplements your insurance to repay what you paid for a vehicle, RTV fills the gap between insurance payout and car value when it was first bought. It’s typically used for older or secondhand cars.
How much is GAP Insurance?
Naturally, that depends on the provider, vehicle, age, etc., but in general GAP policies start from around £150 for 3 years’ cover. Our RTI GAP insurance is available from £147 for 3 years of protection.
GAP may be offered as part of a benefits bundle or package by a car dealer but it’s usually cheaper to buy it from a broker or insurer. For this reason, it is always worth getting a quote for GAP separate from your vehicle purchase – we are confident that we would be able to beat your dealership’s price for GAP.
How long does GAP Insurance last?
Our RTI GAP lasts for 3 years, which is the usual timespan, but some providers offer 4 or 5 years.
Do I need GAP Insurance?
There’s no hard and fast rule and only you can decide, but it can be a good idea if you have a valuable brand new car. It’s a voluntary ‘extra’ policy so there’s no legal requirement to have it.
However, if your car is worth considerably less than you paid for it or you took out a sizable loan to buy it, it could give you peace of mind that you won’t end up out of pocket. GAP effectively removes depreciation from the picture entirely. This should make it financially easier to either buy another car outright or get another via finance.
Do I need GAP Insurance on a lease?
It’s a useful thing to consider. If you’ve chosen the long-term lease method of car ownership, you’re effectively renting that car and will normally have a mileage allowance. A total loss, albeit not your fault, may mean you have no car but you do still have a big bill to pay. GAP can bridge that difference.
Is GAP Insurance worth it?
In most cases, we think so, yes, especially if you bought your car with finance. However, fully comp car insurance will often pay for a like-for-like (same model, age, state) vehicle so there may be no need if, say, you paid cash for it upfront and it hasn’t depreciated much while you owned it. But, if you want another brand new car instead of your 2-year-old model, it may be something to consider.
Insurers often offer brand-new car replacements on vehicles under 1 (sometimes 2) years old so, again, in its first year, it may not seem worthwhile to get GAP insurance for your brand new motor. However, you would see the benefit of the GAP policy after year 1.
Got GAP questions?
If you’re unsure if GAP’s for you, have specific questions or want a quotation, get in touch to discuss your personal needs today!
Read more: Why you should buy GAP Insurance from brokers
